Should the Government Invest More in Nudging?


Essay, 2020

10 Pages, Grade: 1


Excerpt


Table of Content

1 Nudging in a Governmental Context
1.1 Definition and Practical Dimension
1.2 Nudging as the Means of Choice?

2 Discussion - The Pros and Cons of Nudging

3 Final review
3.1 Conclusion
3.2 Outlook

4 List of References

1 Nudging in a Governmental Context

“Countries all around the world, starting with the U.K., have started behavioural
insight teams, often referred to as nudge units. And they seem to be doing lots of
good.”
(Thaler 06.12.2017)

Nudging - the concept of decision-guiding elements which preserve the choice-liberty of individuals - is what Richard Thaler describes optimistically at the Nobel Talks in Stockholm to be a trend not just in science, but also among private and public stakeholders (Sunstein, 2014, p. 583). Especially the curiosity of governments, as being stated above, has been aroused with respect to use nudging as a tool that influences “people's choices through policies that offer the right incentive or hurdle so that people choose the more economically beneficial options” (Bazerman & Moore, 2009, p. 53).

The development of nudging as a governmental approach highlights the relevance of this concept while simultaneously increases the need to understand, why such measures might be justified or not. Consequently, this essay seeks to tackle this circumstance and tries to answer the question that has been raised in the past: Should governments invest in nudging? Before opposing the positive arguments to negative ones, it is indispensable to describe nudging in more detail and to understand where it originated from. After having done that, the essay guides argumentatively through the research question and presents an answer. Finally, the authors offer a prospective outlook to what might come next.

1.1 Definition and Practical Dimension

Nudging as a relatively modern idea is “any aspect of the choice architecture that alters people's behavior in a predictable way without forbidding any options or significantly changing their economic incentives” (Thaler & Sunstein, 2009, p. 6). It should represent a passive action that maintains the freedom of the individual's choice at any time - therefore actions of coercive nature such as prescriptions, bans or orders cannot be counted as nudges. By changing the choice architecture, which is the context in which we set our decisions, a nudge alters the perception of specific choice-options (ibid., 2009, p. 6). This in turn weights the different probabilities of the choice process, thus steering the decision of the individual in a desirable direction.

A short example illustrates, how a realistic implementation of a nudge might look like: Within a school cafeteria, the students are confronted with several options of food, say healthy vegetables or unhealthy convenience food. The headship as a high authority is probably interested in the student's overall welfare, hence prefers them to opt for the healthy option. By modifying the cafeteria, i.e. the surrounding in which the students choose their meal, the school management is able to influence their decisions in their supposed interest without forcing them. Such modifications could be a direct confrontation with the negative impact of junk food (e.g. showing the nutritional value) or simply enlarging the physical distance between the students and the convenience food compared to its nutritious counterpart to an uncomfortable extent. The result remains the same: The probability of choosing the vegetables is increased while having low costs and no elimination of the alternative junk food option.

1.2 Nudging as the Means of Choice?

After having brought this vivid example to mind, one might understand the wide implementation-possibilities of nudging and how supposedly simple actions can guide decisions not only of individuals but entire groups or societies. Therefore, it is no surprise that states like the U.K. perceived the value of nudging already years ago which lead to the professional integration of behavioural insight teams - or so called “nudge units” - into governmental structures (Quigley, 2013, p. 588). Nowadays, the idea is spread to other nations and different forms of state-controlled nudges are numerous: In Austria, for instance, the automatic enrolment into the program of organ donation is standard, therefore a clear disagreement is required to avoid the donation (Republic of Austria, 14.12.2012). In the U.S. state California, families in need of welfare were confronted with their financial losses if they do not attend consultation appointments whereas parents in Ohio who are overdue on child support payments, were reminded via messages in order to increase their adherence to payment­deadlines (Bohannon, 2016, p. 1042). All the measures share similar characteristics: They require little effort of the government but pose a relatively profound impact.

Making use of this efficient nature, more and more public authorities drift away from imposing bans or mandates and instead use nudging as their policy-tool of choice (Sunstein, 2014, p. 583). However, the concomitant implications are manifold and shed light on ethical, technical and economic dimensions. Therefore, the implementation of nudging needs to be carefully justified. An objective this paper pursues in the following chapter.

2 Discussion - The Pros and Cons of Nudging

The previous elaboration has already shown several arguments that might justify the governmental use of nudging. But nudging surely is a controversial topic because of its possibilities to influence people's decisions. Therefore, it relates to multiple opportunities but also with risks which need to be weighed up. The most important arguments in favour and against governmental nudging will be discussed in this passage.

In favour of nudging it can be said that nudging supports better decisions. Individuals naturally tend to make inferior choices, that would change if they had unlimited cognitive abilities, complete information and no lack of willpower (Heukelom, 2019, p. 109). Additionally, people often neglect possibilities because of inertia, for example in the context of retirement savings (Sunstein, 2019, p. 200). Procrastination is another problem as people tend to ignore opportunities because of short-term costs even if long-term benefits are immense (ibid., p. 201). The aim of nudging is to make it easier for people to analyse and make complex decisions and, for example, balance time preferences (Bartke et al., 2014, p. 767). Therefore, nudging can be seen as a help to come to “better” decisions and as a way to overcome these difficulties. In a governmental context, nudging is often used to nudge people towards health­supporting decisions. Disturbing pictures on cigarette packs to prevent people from smoking are a well-known example in this context. The government uses nudges not only to prevent individuals from harming themselves but also because health-affecting decisions like smoking might affect other people's health too. If the main aim behind nudging is protecting people, it can be regarded as legit (Quigley, 2013, p. 618).

This presumption of a legit aim leads to the first argument against nudging: Who has the qualification to decide what constitutes the “better” decision? Governmental officials can be subject to errors or biases, wherefore decision-quality and moral awareness might be impaired (Sunstein, 2019, p. 206). However, in the context of smoking a nudge might be justified but the risk of abuse cannot be denied. Public officials could use nudging to push through their agendas subliminally (Bundeszentrale für politische Bildung, 03.11.2017). This could pose an essential risk in conjunction with elections. This might come in conflict with the fundamental rights of a democracy. Therefore, regulations for nudges are needed while public discussions about this topic must increase the awareness of nudging.

However, from a governmental perspective nudging has a big advantage over other policy-tools: Its low costs. For instance, the government usually is interested in its population's education. It is important that many young people from different financial backgrounds get access to college education. Therefore, it is necessary to give governmental incentives to increase the numbers of enrolment. A traditional tool would be to give financial aid to the needy students or to tender scholarships. Both methods might not always have the desired impact on the number of college enrolments. Because of that, in a study from 2013 it was tried to additionally offer advice from tax professionals to help low-income families filling out financial-aid forms and calculating the amount of potential aid for their enrolled children (Benartzi et al., 2017, p. 1045). This nudge led to an increase of about eight percentage points in likelihood of people attending college in the following year (ibid., p. 1045). Compared to traditional subsidies it had a lager impact than other traditional policy-tools. Surely this nudge was just an addition to traditional incentives but in comparison to a person not attending college it comes relatively cheap for the government in a long-term perspective.

As seen in the mentioned study, nudges are often used on top of traditional incentives. This is the case because the feasibility and effectiveness have yet to be proven in field experiments additionally to the studies conducted in controlled laboratory(-like) settings (Quigley, 2013, p. 619). The named study adhered to this ideal: Comparison of nudging to traditional policy-tools. But more of this kind of research is necessary before there can be a clear answer to the question of feasibility (Benartzi et al., 2017, p. 1050).

Another point is that there are different types of nudges. Some affect system one and others system two - the two distinct “minds” of our brain. It is argued that system one nudges are usually more effective (Quigley, 2013, p. 619). Governments have to keep this in mind when they want to construct a nudge. This argument highlights that in contrast to the potential of nudging being a low-cost policy-tool stands the insecurity about the real-life impact of nudges. Because of that there is a need to collect more information and share the data to come to solve this problem. Moreover, nudge units and other organizations enlisting nudges should share their data to gain more knowledge about nudging as a policy-tool (Benartzi et al., 2017, p. 1052).

The last dimension of this discussion will be the ethical one. On the one hand, it can be said that nudges do not foreclose any options. As seen in the example of college enrolments, nudges only constitute another incentive or opportunity for the people to gain access to higher forms of education. Scientist therefore argue that nudges are somehow libertarian because they leave the choice essentially unchanged (Quigley, 2013, p. 607).

On the other hand, there is the well-known conflict between freedom of choice or autonomy and the desirable behavior because nudges work by by-passing our rational processes (ibid., p. 615). This argument is based on the assumption that humans make rational choices, however, many scientists doubt this assumption. Therefore, nudging as a research area is connected to the “heuristics and biases” school of thought. This school sees humans as irrational decision-makers who tend to make mistakes systematically and conduct decisions based on heuristics. In this view, nudges do not impair the autonomy of decision-making because a decision is never autonomous.

Our last argument in favour of nudging is that governments do not decide between regulating or not, they usually decide between different forms of regulation (ibid., p. 619). In comparison to traditional bans nudging might be the most liberal form of regulation. So even if it affects the freedom of choice, tractional bans would cause a much larger conflict. In a governmental perspective this leads to another benefit: Less resistance. Because nudging works subliminally, people might not recognise the nudge directly. There is the chance that they are led to the “better” decision without questioning it and therefore it leads to faster and more efficient decision-making.

To close this discussion, it can be concluded that nudging poses essential benefits for the government and might lead to “better” decisions for the people. As shown before, some governments already use nudging as a modern policy-tool.

3 Final review

Governments bear a lot of responsibility for their decisions, because after all, the common good of a large number of people is at issue. Thus, there is a need for a continuous questioning of already applied policy-tools as well as the use of new ones. One of these new possibilities is nudging, which has already received much attention and is therefore addressed in this paper. The question of whether governments should invest in nudging was put into focus.

3.1 Conclusion

Influencing people's decision-making process surely is a controversial topic in many aspects. Nudges come with wide implementation-possibilities and may not only influence the decision-making of individuals but whole societies. They require relatively little effort of the government compared to the profound impact they pose. Therefore, the chances and risks of this policy-tool were widely discussed and afterwards evaluated. Nudges are primarily attractive to governments because they are cheap and easy to implement. Another important argument is that although the decision­making context is influenced, people are still given the freedom to make their own decisions. The criticism of influence can be countered by saying that the change in choice architecture nevertheless allows more freedom than conventional bans. This in turn leads to less resistance. Nudging can also be implemented in a mutually beneficial way and lead to better decisions. The risks described, such as abuse of power or the question of responsibility, should not be seen as general disadvantages in this context, as precautionary measures can be taken in this regard. To be effective and acceptable to the population, it is therefore relevant that nudges are transparent and comprehensible. Given this background, the government definitely should consider investing in nudging.

3.2 Outlook

In the current pandemic situation, the far-reaching bans are met with misunderstanding and protest from parts of the population. Nudges could help here due to their liberal character. However, this raises the question of ethics, since the restrictions are constitutionally controversial and may not be appropriate in the current situation of danger. Even though there is little debate at present, governments will inevitably have to deal intensively with climate change in the coming decades. For example, the paper "Framing and Nudging for a Greener Future", written by Cheryl Hall in 2016, deals with this issue - nudges such as Ecolabels are recommended. In general, more research on nudging is required from experts, so the extent of future implementation remains to be seen. Consequently, this paper can only give a limited answer to the question of governmental responsibility.

4 List of References

Bazerman, M. H., & Moore, D. A. (2009). Judgment in managerial decision making. 7. Aufl. Hoboken, NJ, Wiley.

Benartzi, S., Beshears, J., Milkman, K. L., Sunstein, C. R., Thaler, R. H., Shankar, M., Tucker-Ray, W., Congdon, W. J., Galing, S. (2017). Should Governments Invest More in Nudging? Psychological science, 28 (8), 1041-1055.

https://doi.org/10.1177/0956797617702501.

Bohannon, J. (2016). Government 'nudges' prove their worth. Social Science (New York, N.Y.), 352 (6289), 1042. https://doi.org/10.1126/science.352.6289.1042.

Bundesgesetz über die Transplantation von menschlichen Organen (Organtransplantationsgesetz - OTPG). In: §§ 5-7.

Bundeszentrale für politische Bildung (2017). "Schubs mich nicht!" - Nudging als politisches Gestaltungsmittel | bpb. Bundeszentrale für politische Bildung vom 03.11.2017. Online available at https://www.bpb.de/lernen/digitale- bildung/werkstatt/258946/schubs-mich-nicht-nudging-als-politisches- gestaltungsmittel (29.10.2020).

Heukelom, F. (2019). Richard Thaler's behavioral economics. In: Roger, F., Shu-Heng C., Kurt, D. et al. (Hg.). Routledge Handbook of Behavioral Economics. Routledge, 101-111.

Quigley, M. (2013). Nudging for health: on public policy and designing choice architecture. Medical law review, 21 (4), 588-621.

https://doi.org/10.1093/medlaw/fwt022.

Bartke, S., Bosworth, S., Bruttel, L., Funk, L., Güth, W., Haupt, M., Kliemt, H., Schnellenbach, J., Stolley, F., Weimann, J. (2014). Nudging als politisches Instrument - gute Absicht oder staatlicher Übergriff? Wirtschaftsdienst 2014 (11), 767-791.

Sunstein, C. R. (2014). Nudging: A Very Short Guide. Journal of Consumer Policy, 37 (4), 583-588. https://doi.org/10.1007/s10603-014-9273-1.

Sunstein, C. R. (2019). Behaviorally informed regulation, part 1. In: Roger, F., Shu- Heng C., Kurt, D. et al. (Hg.). Routledge Handbook of Behavioral Economics. Routledge, 199-209.

Thaler, R. H. (2017). Nobel Prize Conversations Stockholm, Nobel Week, 06.12.2017. Online available at https://www.nobelprize.org/prizes/economic- sciences/2017/thaler/interview/.

Thaler, R. H., & Sunstein, C. R. (2009). Nudge. Improving decisions about health, wealth, and happiness. New York, NY, Penguin.

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Details

Title
Should the Government Invest More in Nudging?
College
Zeppelin University Friedrichshafen
Grade
1
Author
Year
2020
Pages
10
Catalog Number
V1161447
ISBN (eBook)
9783346574299
ISBN (Book)
9783346574305
Language
English
Keywords
should, government, invest, more, nudging
Quote paper
Zino Roos (Author), 2020, Should the Government Invest More in Nudging?, Munich, GRIN Verlag, https://www.grin.com/document/1161447

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